A supplier of luxury perfumes may not prohibit its authorised distributors from selling the perfumes via open online platforms like eBay and Amazon. The Landgericht Frankfurt, the district court of the German city of Frankfurt am Main, came to this decision in its judgement of 31 July 2014.

The case

Coty, a supplier of luxury perfumes such as Joop!, Lancaster and Calvin Klein, uses a selective distribution system to sell its perfumes in Germany. Coty’s authorised distributors are prohibited from selling the perfumes via open platforms like eBay and Amazon (the marketplace ban). Parfümerie Akzente GmbH. (Akzente) is one of Coty’s distributors. Akzente operates a chain of perfumeries in Southern England and Germany. Akzente also sells Coty’s perfumes on its own online shop and via Amazon. Coty was mainly displeased with the sale via Amazon. Coty therefore turned to the Landgericht Frankfurt to demand that Akzente be prohibited from selling its perfumes via Amazon.

The Landgericht’s view

The Landgericht carries out a test consisting of three elements. First the Landgericht considers whether Coty’s selective distribution system is at odds with the ban on cartels. Then it looks at whether the Block Exemption for vertical cooperation (Block Exemption) can be relied on. Finally, it investigates whether the conditions for a legal exception are satisfied. The result of this test was that Coty’s absolute ban on certain marketplaces is at odds with the ban on cartels. Coty’s claim was therefore dismissed.

Violation of (European) ban on cartels

According to the Landgericht, a selective distribution system is, in principle, in violation of the European ban on cartels (article 101 (1) TFEU). This is only otherwise if four so-called ‘Metro criteria’ are satisfied: (i) the characteristics of the particular product necessitate selective distribution, (ii) the distributors are chosen on grounds of objective qualitative criteria that are uniformly determined for all potential distributors and are applied in a non-discriminatory way, (iii) the particular system aims to achieve a result which improves competition, and (iv) the prescribed criteria go no further than is necessary.

According to the Landgericht, it follows from the Pierre Fabre judgement that merely preserving the luxury image of a brand is not enough to justify introducing a selective distribution system. The Landgericht then noted that there is a dispute in the German literature on whether an absolute marketplace ban can be permitted under competition law. Recent German case law has ruled, however, that an absolute marketplace ban without any qualitative justification is in violation of the ban on cartels. That is why the Landgericht reached the same conclusion in relation to Coty’s selective distribution system.

The Block Exemption

On grounds of the Block Exemption for vertical cooperation, agreements between non-competitors have been exempted from the ban on cartels, on condition, however, that the market share is < 30% and the agreement does not contain any hard core restrictions. The Landgericht did not make any pronouncements on whether the market share of Coty and Akzente remains under the 30% limit. Specifically, the Landgericht was of the opinion that the Block Exemption could not be relied on anyway because the absolute marketplace ban must be regarded as a hard core restriction as referred to in article 4 (c) of the Block Exemption. Coty had also argued that it follows from paragraph 54 of the Guidelines for vertical cooperation that a supplier may require of its distributors ‘that the customers do not visit the distributor’s website via a site that bears the name or logo of the platform of the third party’. This ban, also designated by various German judges as the ‘logo clause’, is now outdated because of the Pierre Fabre judgment, according to the Landgericht.

The legal exception

In order to be exempted from the ban on cartels on grounds of the legal exception of article 101 (3) TFEU, four criteria must be satisfied: there must be (i) efficiency advantages, which (ii) largely benefit end users. Also, (iii) the restriction of competition must be necessary and (iv) enough competition must still remain.

In the Landgericht’s view, Coty’s absolute marketplace ban does not result in any efficiency advantages. The sole aim is to restrict pressure on prices. A luxury image can be preserved using means that are less restrictive for competition. The Landgericht also does not see what product-related conditions are served by the absolute marketplace ban. The Landgericht is aware from its own experience that Amazon is a quick, reliable and inexpensive provider.

Conclusion

This decision does not stand in isolation. A number of German courts and the German competition authority, the Bundeskartellamt (BkartA), have recently given similar pronouncements on absolute marketplace bans. Since the German courts and the BkartA always take the European ban on cartels into account in their decision, it is worthwhile for us to keep an eye on what is happening across the border. This is all the more the case since the Dutch courts and the Netherlands Authority for Consumers & Markets (ACM) have been silent on the question of whether an absolute marketplace ban can be permitted under competition law.

What lessons can we learn from the developments in Germany? It seems as if an absolute marketplace ban which is not based on any clear quality criteria is not permitted. The luxury image or necessary advice will have to be guaranteed by means of clear quality criteria. These criteria may go no further than is necessary. Furthermore, there must be no less drastic possibilities available. Being well prepared is half the battle…

If you have questions about whether your (selective) distribution system is permissible in general or about a marketplace ban in particular, please contact:

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